1. Inadequacy of Capital: The development of Water resources requires a huge amount of capital. However, as a poor country, Nepal lacks sufficient capital. As a result, Nepal cannot undertake large hydroelectricity and irrigation projects without any external support.

2. Lack of Technology and Technicians: Technical knowledge is very important for the development of water resources. However, Nepal still lacks technicians with high-level technical knowledge. Nepal must thus import highly skilled technicians from other nations.

3. Limited Market: The market for water products is limited. The purchasing power of Nepalese people is very low. The only foreign market is India but the Indian policy regarding these products is not favorable.

4. Defective Government Policy: Government policies on water resource development are neither appropriate nor effective. There is a lack of adequate statistical data regarding the current situation of water resources. Nepal government has adopted the open-door policy for private investment but the policy and legal provisions are neither adequate nor clear-cut.

5. Rugged Geographical Terrain: Most of the projects related to water resource development are located in hilly areas with uneven geographical terrain which causes difficulties in the development of water resources in Nepal.

6. Political Instability: Due to political instability there is a problem in the continuation of existing projects, programs, and policies with the change in government. This creates uncertainty in the economic activities which further discourages the entrepreneurs and reduces domestic and foreign investment.